2013 in-house compensation report

In the wake of the recession, in-house lawyers have become accustomed to taking on challenges. They’ve accrued responsibilities related to new technologies and regulations, and they’ve learned to operate on leaner budgets by internalizing more work.

In-house lawyers also manage and balance corporate risks. “They have to be strategic, big-picture thinkers with the ability to manage people and priorities, set goals and focus the organization toward those goals,” says Vanessa Vidal, president of ESQ Recruiting, which specializes in in-house attorney searches. “They have to be true partners and consultants to the CEOs, CFOs, HR professionals, and other key management and operation personnel.”

The legal consultancy Altman Weil Inc.’s 2012 Chief Legal Officer Survey found that CLOs spend roughly 22 percent of their time advising executives and participating in strategic corporation issues. The finding underscores legal leaders’ evolving roles as advisers who are central to the business mission.

“The general counsel function is evolving into an executive-suite leadership role,” says Mike Evers, president of recruiting company Evers Legal Search Inc. “GCs are viewed as more critical to CEOs and boards of directors. It’s in direct relation to regulations—such as the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Sarbanes-Oxley Act and the Foreign Corrupt Practices Act—that can look scary to nonlawyer executives.”

According to Evers, corporate America’s desire to proactively prevent problems is a culture change from the past. “If we were having this conversation 20 years ago, the role of a general counsel might have been viewed more as navigating work to outside counsel, playing gatekeeper and being more of an administrative function,” he says. “Now, general counsel are relied upon more for qualitative advice that will make a difference in the business. That additional responsibility yields higher compensation.”

Other experts agree that inside counsel are seeing a meaningful financial return on their increased workloads as companies emerge from the economic downturn.

On the following pages, consultants and legal recruiters share their research and predictions for the 2013 in-house compensation and career outlook.

Healthy Uptick

According to HBR Consulting’s 2012 HBR Law Department Survey, which reports on data from 2010 and 2011 and in which a record 260 companies in 21 industries participated, compensation for the in-house bar is on the upswing.

The survey found that the average base salary increase among all legal department staff levels was 3.4 percent, up from an average increase of 3.3 percent that companies reported in the 2011 survey. CLOs saw the highest average base salary increase at 5 percent, with GCs right behind at 4.8 percent. CLOs and GCs earned average base salaries of $521,238 and $427,402, respectively.

“We’re not seeing dramatic increases in base salary, but the increase we did see this year is very positive, considering where we were two years ago,” says Lauren Chung, senior director and survey editor at HBR Consulting. “Back then, we had compensation levels and base salaries staying flat or decreasing. Last year, we saw a rise in base salary. And this year, we’re seeing another steady increase. It’s moving in the right direction. It’s hopeful.”

Vidal says the increase is due to the relative stability of the economy. “Last year, I compared the economy to a car that was repaired on the cheap that could stall at any time. Keeping with that analogy, I’m happy to report that the car is not only holding together, but it’s actually picking up speed,” she says. “Since 2007, it feels like we’ve finally turned a corner, and that’s translating into noticeable salary increases.”

Vidal says part of the reason there has been a steady increase in compensation is because in-house counsel are striving to prove their worth to their companies. “When they can show true value, either in actual dollar amounts with cost reduction or efficiency by improving processes, then their roles are much more appreciated, and they can leverage that in demanding compensation that reflects those efforts.”

Money Makers

HBR Consulting’s survey found that the five top-paying practice areas, based on average total cash compensation, are antitrust/trade regulation, intellectual property (licensing), mergers and acquisitions, government relations, and companywide compliance.

Vidal says technology changes are creating some new in-demand, high-paying practice areas. “Recession breeds innovation, and with innovation comes the protection of intellectual property,” she says. “We have seen a boom in technology transactions ranging from complex M&A and IP transactions to licensing and patent litigation. Privacy law is the newest hot practice area. Because of innovation and technology, it’s easier to collect personal information. So companies of all kinds are trying to manage the way they use data to comply with U.S. and non-U.S. laws and to protect that data from unauthorized access. Companies have to contend with cyberhacking, data breaches and other privacy concerns that are exposing them to liability, and it’s also costing them a great deal of money. As a result, more chief privacy officers and privacy counsel are joining companies of all sizes.”

The financial services, technology, software and health care industries are leading the pack in privacy hiring efforts, according to Vidal.

Experts say companies are boosting their legal department staffs by hiring specialists such as those Vidal referenced. Chung says 39 percent of respondents to HBR Consulting’s survey said they planned to increase the number of specialist roles for specific practice areas in the next year.

Meanwhile, Evers says the two subject-matter areas for which his staffing company gets a large number of ongoing requests are securities and IP. “These are senior counsel positions, assistant general counsel positions—positions where you need an experienced, talented, robust subject-matter expert who then is providing that for the company and for his general counsel,” he says.

As for other areas of law expected to grow in the next two years, 19 percent of respondents to staffing agency Robert Half Legal’s 2013 Salary Guide predicted that health care law would flourish the most. Seventeen percent of respondents predicted that general business/commercial law and litigation would grow the most.

The study found that GCs saw a 12.8 percent increase in pay last year, compared to CEOs, who saw a 6.2 percent increase, and CFOs, who saw an 8.9 percent increase. The study also determined that Fortune 1000 GCs who report directly to the CEO earn a median pay of $1.55 million. The highest-paying industries include technology, media and telecommunications; GCs who work for companies in these sectors earn a median of $1.7 million. The lowest-paying industries are retail and consumer products, in which GCs earn a median pay of $1.1 million.

Important Extras

Bonus levels are similar to those that companies reported in HBR Consulting’s 2011 survey. CLOs saw an average cash bonus of $518,035, which is a 5.1 percent increase. GCs saw an average cash bonus of $316,726. Although the amount is a 4.5 percent decrease from the astounding 18.3 percent jump companies reported in the 2011 survey, GCs still are seeing an increase compared with years past. The average cash bonus for all attorney levels was $62,465, a 3.4 percent increase.

Some companies are continuing to award bonuses based partly on GCs’ performance. “Some of our clients have put into place some really interesting bonus formulations that have been tied directly to a counsel’s ability to reduce legal costs,” Vidal says. “That’s been a very creative way to reward counsel.”

Chad Volkert, executive director of Robert Half Legal, says many companies are using other creative incentives to entice and retain talent. “For a lot of candidates, it’s not all about the dollars,” he says. “Many of them are looking for flexible work schedules, telecommuting—having some other benefits, from a flexibility standpoint, that we’re seeing take the place of additional bonus dollars.”

As for long-term incentives, Chung says respondents to HBR Consulting’s survey said they are dishing out a combination of deferred cash, stock options, restrictive stock and other types of company-specific long-term incentive plans.

“We are starting to see equity—stock options, restrictive stock and things of that nature—come back into the mix,” Vidal says. “It’s not to say that equity disappeared altogether, but as companies were not doing so well, what we saw in the past few years were bonuses tied to company performance and counsel performance. As companies are starting to do better, there is now some more associated value with equity—it’s the black dress that was never out of style but is definitely more in season than it used to be as companies are doing better, especially on the public market.”

According to HBR Consulting’s survey, the average total value of long-term incentives that CLOs earned was $913,511, which made up 42.9 percent of their total compensation. GCs’ average long-term incentive value was $805,540, which accounted for 41.7 percent of their total compensation. Attorneys across all levels saw an average long-term incentive value of $93,039, which amounted to 19.1 percent of their total compensation.

Job Outlook

Despite the fact that many law school graduates still face a bleak legal job market, hiring—albeit selective—is on the rise.

According to Altman Weil’s survey, 37.7 percent of respondents said they planned to increase the number of in-house lawyers in their legal departments in the next 12 months. Nearly 53 percent of respondents said they planned to keep the same number of lawyers in their legal department workforce. Almost 20 percent of respondents said they planned to increase the number of contract lawyers working in their legal departments in the next 12 months, and about a quarter of respondents said they planned to increase the number of paralegals.

“In-house hiring is robust for the first time in several years,” Evers says. “When it comes to headcount growth generally, it’s simply because the current in-house staff is maxed out. Options come down to adding nontraditional individuals, such as contract attorneys, sending more work to outside counsel or actually hiring. Companies are dabbling with all of those solutions, but thankfully we are at a place now where a number of companies are growing their law departments strategically and slowly.”

Evers says he’s also seeing an interesting hiring trend. “It is becoming rarer for a company to look at a candidate who’s coming straight from a law firm,” he says. “The desire is to have candidates who already have in-house experience. It’s becoming more of a requirement as opposed to a preference. So we’re seeing musical chairs—people moving from law department A to law department B. Companies want the individuals who’ve already made the culture change and can step in and be a plug-and-play hire. Simply having a good résumé and pedigree stamp from a law firm does not instantly yield the kind of in-house job it may have 10 or 20 years ago.”

Vidal agrees. “It’s not simply being an excellent legal counsel,” she says. “The key is to understand that company’s business and industry. The in-house market is for the businessman who also happens to be a lawyer. The law firm market is for the lawyer who wants to be a lawyer and likes to work with businessmen. There’s a difference.”

According to Robert Half Legal’s survey, 45 percent of respondents said it’s challenging for their companies to find skilled legal professionals. “So overall, the hiring outlook is cautiously optimistic, but certainly very tight for candidates that have those in-demand skill sets,” Volkert says.

Volkert says lawyers can successfully market themselves for in-house positions by fine-tuning their skills in hot practice areas, continuing legal education in those areas, taking on more responsibility and networking within the legal community. “Being very proactive about your career, taking a look at where you want to be in five years and putting together a plan is important,” he says. “Take a holistic view and set forth a strategy for your career.”